Can Tesla, which has a price war with a maximum drop of 37,000 yuan, really impact the market pattern?

In the recent period of time, the most interesting news in the new energy vehicle industry is that Tesla has cut prices sharply. On October 24, Tesla China announced that it will implement a substantial price reduction for all its Model 3 and Model Y models, ranging from 14,000 to 37,000 yuan.

After the sharp price cut, the price of the Model Y rear-wheel drive model fell below 300,000 yuan. The entire Model Y series has no models that sell for more than 400,000 yuan, and the Model 3 top model also fell below 350,000 yuan.

The outside world has been talking about this, and many consumers who have just bought a car have even started to defend their rights. Tesla is the second largest new energy vehicle manufacturer in the world after BYD. The sharp price reduction of all models will have a relatively large impact on the new energy vehicle market.

Why did Tesla suddenly cut prices? Will it really impact the industry structure?

Did Tesla really drop that badly?

Tesla’s price cut has aroused widespread concern among consumers, and a drop of up to 37,000 yuan is indeed relatively rare. The price of the Model Y long-life version has been reduced from 394,900 yuan to 357,900 yuan, and the cost performance has been greatly improved. In addition, models such as the Model 3 have also received more attention after price cuts.

But this time Tesla’s sharp price cut is based on the previous sharp price increase. Before this price cut, Tesla raised prices six times in a year, and now the sharp price cut is just a return to the original market price.

From an objective point of view, this does not substantially improve the cost performance of Tesla. It is only because of the strong brand influence of Tesla that it has become the focus of the entire industry.

Judging from the price reduction rules officially announced by Tesla, the price reduction rate of most models is less than 20,000 yuan. This level of price reduction cannot change the market positioning of these models. The overall price of Tesla is still high. A grade from BYD and other manufacturers.

Therefore, consumers will make a very rational choice after calming down.

Why drop the price?

There are always reasons for a large new energy vehicle manufacturer to suddenly cut prices sharply. Tesla’s sharp price cuts are due to its own business strategy on the one hand, and fierce industry competition on the other hand. In the Chinese auto market, price has always been one of the most important market competition tools.

First of all, Tesla has cut prices sharply in order to make some of its models catch up with the last train of state subsidies. Market participants generally believe that the current subsidy policy for new energy vehicles will end at the end of 2022 and will not be extended in 2023.

After this round of sharp price cuts, the price of the rear-drive version of Tesla’s main model Model Y fell below 300,000 yuan, which is in line with the relevant national subsidy policy and can be “harvested” in the remaining two months.

Secondly, the competitive pressure from BYD and other manufacturers is getting stronger and stronger, and domestic cars are gradually gaining a firm foothold in the price range of 200,000-300,000 yuan, which has led to Tesla having to cut prices to maintain market share.

From January to September 2022, BYD’s cumulative sales reached 1.15 million vehicles, while Tesla’s only 310,000 vehicles, the gap is quite obvious. Meanwhile, BYD’s Han family also outsold the Model 3. After the sharp price cut, Tesla’s competitiveness will be significantly improved.

In fact, Tesla’s current market position is not solid. Compared with BYD, Tesla’s sales volume is significantly lower, which will seriously affect Tesla’s bargaining power when purchasing parts and components, which in turn affects profitability and the progress of new car development.

BYD is a self-sufficient manufacturer and is not very affected by supply chain fluctuations. If the sales gap between Tesla and BYD continues to widen, it will cast a shadow over future development. Price reduction has become the most direct and effective way to expand market share.

Can it really impact the market structure?

After Tesla officially announced the price cut, the most discussed on the market is: Will this price cut impact the market structure.

Tesla is regarded by many consumers as a benchmark manufacturer of new energy vehicles. A sudden sharp price reduction will definitely have a certain impact on the market, but the scale of China’s new energy vehicle market is already quite large.

Although Tesla’s overall sales have been left behind by BYD, many new car-making forces are benchmarking against Tesla in terms of product design and pricing strategy. Tesla suddenly lowered prices, and many new car-making forces will feel some pressure.

At present, Tesla mainly has two main models in China, Model 3 and Model Y. There are not many models of the same level and price.

For many ordinary consumers, the price difference between 10,000 and 20,000 yuan is enough to affect their final car purchase choice. In the past year or so, many people have been affected by the epidemic, their income levels have fallen sharply, and their car purchase budgets have shrunk severely. They have begun to plan carefully and are more sensitive to prices.

When the performance gap is not large, the price has become the most important reference indicator. Tesla’s sharp price cuts have indeed brought a lot of competitive pressure to many of its peers.

In addition, Tesla has another obvious advantage, which is the brand advantage. So far, other than BYD, it is difficult for other domestic manufacturers to compete with Tesla in terms of brand influence.

Tesla’s price reduction will not only enhance its own competitiveness, but also attract potential users of other brands. A potential BYD Han owner may buy a Model 3 because of Tesla’s price reduction. In the domestic auto market, consumers still recognize the Tesla brand.

A sudden price cut by one of the largest manufacturers in the industry will have a relatively large impact on the existing market structure, and some new car-making forces with inflated prices may be forced to reprice. In fact, the new car-making forces are still in the early stage of burning money and have not really made profits.

Tesla can cut prices significantly, but the new forces may not have much room for price cuts.

At present, the sales of many domestic new energy vehicle manufacturers are fluctuating, and brands such as Weimar have even reported the news that the capital chain has broken. After Tesla’s sharp price reduction, the domestic new energy vehicle pattern will undergo relatively big changes. Manufacturers may be eliminated.

Tesla’s sharp price cut can be said to be a one-shot wave, and other manufacturers must come up with corresponding strategies to deal with the impact. Judging from the current situation, in addition to BYD, other domestic new energy manufacturers may be affected.

In order to win over users, many domestic manufacturers sell them at the cost price, and even sell a car at a loss. After Tesla’s big price cut, it remains to be seen which manufacturers can deal with it, and which ones will survive.